Re-visiting agricultural financing models

The viability of agriculture depends on the yield while access to markets is equally important. Here I will also tackle climate change. Financing agriculture. If you borrow working capital at 15 percent (interest rate) on a short-term basis and end up using that money for repairs and maintenance, you are indirectly capitalising your farm. So, you are using your short-term money on a long-term venture. What will happen is you will have a cash-flow crisis, precipitating a problem on your farm.

That is why I’m saying the unstructured nature of that lending is also a cause for concern.

Let’s look at the borrowing of yesterday.

Yes, title deeds were very important, but that borrowing was based on faith and trust.

They knew you and thus could lend you some money.

You would get funds on a five-year term to buy a tractor and about 12 years for an irrigation development scheme at five percent interest rate.

Twelve years of paying interest at a five percent rate, surely it made sense.

But today, even if the 99-year leases were bankable, the issue is that bankers will not be honest.

The issue is that the Reserve Bank of Zimbabwe rules require bankers to work on the basis of the security that you provide.

Therefore, the banking must never be on the basis that you should give security.

The banking sector must give loans on the basis that the project makes sense and the money is structured in a manner that gives you flexible time to pay back.

On top of that, the interest rates have to be reasonable. At 15 percent or 20 percent, the cost of money is too high.

If you are borrowing, say at 20 percent, to produce eggs or broilers; how much will you be making anyway?

So, it is easy to borrow, but difficult to pay back on those interest rates.

Therefore, whether one has or does not have title deeds is neither here nor there.

That is why people lose their properties after failing to pay back loans.

It shouldn’t be the core business of bankers to end up selling customers’ property.

Their core business is to lend on the basis that the project is viable and is able to pay back on its own.

Productivity

Productivity is central in agriculture. That is exactly where the challenge is, and that’s why people have gone into problems as far as farming is concerned.

If you look at maize production in 1995/6, Zimbabwe, for the first time, produced 2,6 million tonnes of maize; and you get 2,6 million tonnes from communal farmers.

In subsequent years, farmers were producing an average of 1,4 million and 1,5 million tonnes per year, constituting about 70 to 80 percent of the maize that was produced by communal farmers.

They were not mechanised at all.

It was cheaper for them to produce and I don’t know why we want to re-invent the wheel and don’t want to revisit the template to establish what spurred them to produce. Communal farmers were producing an average of nearly two tonnes per hectare with one Agritex officer in every ward.

So, we jumped the gun and went as far as putting as many as five Agritex officers in every ward.

However, the yield still came to 0,8 tonnes per hectare.

Surely, we should re-visit why it has happened like that.

But why did communal farmers produce that much?

The reason was very simple, one would want to look at the role Agribank used to play on the group lending scheme and a guaranteed market.

Communal farmers then never worried about the market and got paid, they found themselves eager to produce.

What is happening now?

There is no lending system for communal farmers or ready market for them.

Communal farmers have not benefited from the maize producer price of US$390 per tonne.

That price, heavily subsidised by Government, was to encourage farmers to respond favourably.

Therefore, there is a contradiction when people complain about the cost of fertiliser and want Government to subsidise the cost of fertiliser.

I don’t agree with that because the cost of fertiliser in Zimbabwe is basically the same obtaining regionally, except in countries like Zambia and Malawi where it is heavily subsidised.

But, surely, we cannot have a double subsidy.

The subsidy has already been taken into consideration on the pricing formula of US$390, which cannot be found anywhere else in this world.

It’s only in Zimbabwe.

As a result, I laughed when I looked at statistics on the intake at the Grain Marketing Board of 12 000 tonnes every week. One wonders whether it is coming from farmers or it is coming from somewhere else.

So, why do we have to re-invent the wheel?

Malawi produces about 2,7 million tonnes of maize and Zambia 2,8 million tonnes.

Malawi is not mechanised, yet our Government has given out tractors and other equipment, year in year out, but nothing is happening.

Surely, we are entitled to re-visit the template.

I suggest we engage communal farmers, give them resources and access to markets as quickly as possible.

Let’s also pay them as quickly as possible, I’m sure they will produce.

I repeat, communal farmers have never enjoyed the US$390 per tonne subsidy because they have no direct access to the market.

There is always a middleman. As a result, communal farmers get US$250 to US$260 per tonne if they are lucky.

The same happens in cotton production.

Unless we re-visit the productivity issue, the problem will remain.

Production efficiency is also important.

We need to revisit the template and train our farmers to understand the importance of productivity and that agriculture is a business.

Let’s also stop using terms like subsistence farming. How can you talk about subsistence farming when you have put fertiliser and other inputs into farming?

Access to markets

I want to applaud the introduction of Statutory Instrument 64 of 2016. Actually, I think we became wiser when the horses had already bolted.

There is no free trade anywhere in this world. Trade is war – ammunition and bombs. It is selfish. You protect yourself first no matter what.

You may be signatories to various trade protocols in the world, but you should protect yourself.

You must regulate your own economy, you can’t let everybody walk in and out.

In South Africa, you can’t just enter with your products, America the same.

Here’s an example of cotton.

The price (of cotton) is like that because there are unnecessary subsidies by the Americans, resulting in overproduction and oversupply on the market and this has affected third world countries.

The European Union also subsidises cotton production, affecting us tremendously.

So, there is no free trade and we should protect ourselves as Zimbabweans.

I don’t agree with people who say they want to import cheap food. How cheap is “cheap” for a person who has no dollar in his pocket?

A former Commercial Farmers’ Union chief executive once said a cheap food policy means no food at all.

That is what we have been pursuing.

So I don’t agree with that notion and another that suggests the responsibility of providing food is with Government.

Why should we take it upon ourselves to guarantee a private company with shareholders in England and America cheap raw materials using taxpayers’ money?

Value Added Tax is the biggest contributor to the fiscus and I don’t agree with that, it’s poor policing.

The future of agriculture is in contract farming.

If the users don’t want to contract, then I’m afraid we must re-visit institutions like the Grain Marketing Board and others.

Government was persuaded to deregulate commodities, hoping the private sector would jump in and be part of the financing mechanism to stimulate productivity.

However, they found a formula where they are sitting on the fence and Government is doing it on their behalf.

Surely, everybody would want to be in that situation where you don’t take any risk and just make money because they have a Government that guarantees them raw materials without any risk.

What a pleasure!

And you turn to change that kind of a policy, obviously, they will complain but don’t listen.

If you de-regulated the maize market and it’s not working, surely it’s time to change.

In China, state enterprises are working very well.

The reason why they don’t work well here is that we give those positions to our friends.

We want to appoint people who always say “yes” to us.

I don’t appoint a person who always say “yes” to me, I want someone who will disagree with me because that person will sharpen my brains.

So I am of the opinion that if this thing doesn’t work, we must re-visit the issue of the GMB. It has a role to play. Let’s look at the management style.

As Government, we will not be interested in seeing that there is a shortage of a particular brand of mealie-meal on the market. That’s not our role. Our role is just to make sure there is enough maize meal in the supermarket, regardless of which brand.

Contract farming is the way forward.

Look at Delta Corporation.

It has never complained to Government about the import restriction.

Look at tobacco, it has succeeded on the back of contract farming.

Look at sugar, yes, people might argue that there is no opportunity for side-marketing but that is precisely the reason why there is concern about the system.

We should sit down with Government to address side-marketing.

If you look at cotton, same thing.

When cotton was not deregulated, there was a vibrant cotton marketing system because it was being financed.

SI64/2016 is noble and I must congratulate the Industry and Commerce Ministry.

Don’t listen to complaints because they are coming from people who used to benefit from that shortcoming.

If you change a system and people don’t complain, then you have not changed the system.

You should close the doors because some people were taking advantage of that system.

How do you justify outlets in town that don’t contract farmers from Mutoko to grow tomatoes and want to import from South Africa?

We need to regulate this economy no matter what.

We need to know what is coming into this country and whether it is necessary or not.

Sooner or later, we will become self-sufficient.

I hear some retailers were complaining that they had been affected.

Don’t worry, let them be affected.

They will soon find ways of dealing with that.

We have poor farmers in Mutoko who produce maize, carrots, tomatoes, butternuts and compete with imports.

Let’s not listen to people who are saying their businesses will die.

We should produce what we need regardless of the cost, and then look at efficient production.

Climate change

In terms of climate change, it would be overambitious to assume that all the crops will be irrigated.

You can talk about climate (change) when you know that in some seasons, we are going to have normal rainfall.

If we are going to have normal rainfall for the next 10 years, how do you irrigate?

The seasons are changing, let’s follow the patterns.

If we check the statistics, I think you will agree with me that we have received normal rainfall, but the pattern has changed.

You can’t tell me that we have a drought when we have veldfires all over.

Where there is a drought, there is no grass.

I want to also appeal to the private sector to come to the party and finance maize production in Zimbabwe.

But let me urge captains of industry not to just praise ministers even when they talk rubbish.

Let’s disagree with them when necessary because it is healthy.

Cde Paddy Zhanda is Agriculture, Mechanisation and Irrigation Development Deputy Minister (Livestock). He made these remarks at a Zimbabwe National Chamber of Commerce breakfast meeting at the Harare Agricultural Show last week.